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Buyer Beware

The Dangers of Buying Gold

Advertisements promoting gold dominate the airwaves, touting gold as the ultimate investment, the place to be in these times of financial and economic uncertainty. Although it is true that gold has been valued in all civilizations for some 6,000 years, will the respondents enjoy the benefits that the ads promise? Probably not. Most of the firms sponsoring the ads promote gold coins at grossly inflated prices. One company openly acknowledges marking up their gold bullion coins thirty percent but sometimes has markups of seventy percent. Another firm has been known to markup its coins one hundred percent.How is it that these firms can convince investors to buy at such inflated prices when the normal markup on gold bullion coins is two percent to seven percent, depending on the coins and the quantities? Several factors come into play.

First, the ads are based on fear, and the telemarketers reinforce that fear by talking about alarming topics that dominate the news, such as the declining dollar, the burgeoning national debt and massive deficit spending. The possibility of war with Iran is often used to scare callers.

By focusing on frightful topics, the telemarketers get callers to react emotionally, instead of logically. Instead of buying gold as an investment, callers are moved toward buying protection against Armageddon.

Should the callers be astute enough to ask about the American Eagle gold coins, the world’s best-selling gold coins, or the South African Krugerrands, the world’s best known gold coins, both of which carry very low premiums over the value of their gold content, the telemarketers unload their big guns and start talking about “gold confiscation.”

In 1933, in the midst of the Great Depression, by executive order President Roosevelt made it illegal for Americans to own gold bullion or gold bullion coins. The order stood until December 31, 1974. Telemarketers call Roosevelt’s act a “confiscation,” but in reality it was a “call-in” of U.S. gold coins.

Americans turning in their gold coins were given U.S. paper currency of equal face value. Still, Roosevelt’s “call-in” was a dark moment in American history, and it haunts the gold market to this day. In the back of the mind of the most optimistic gold investor lies the fear that someday the government may again call in gold “if things get bad enough.”

After instilling the fear of loss, the telemarketers introduce the notion of “non-confiscatable” gold coins: old U.S. gold coins, or modern U.S. proof gold coins or old European gold coins. The telemarketers assert that these coins are “non-confiscatable” because Roosevelt’s 1933 executive order exempted “gold coins having a recognized special value to collectors of rare and unusual coins.”

However, the telemarketers fail to mention that the executive order did not define “special value,” “collector” or “rare and unusual coins.” Further, “collectibles” are not mentioned in the executive order. Still further, the telemarketers do not tell the callers that on December 31, 1974, President Gerald Ford repealed the executive order that Roosevelt used to call in gold in 1933.

Some promoters go as far as to say that old U.S. gold coins, the most frequently touted coins, are “not confiscatable by law.” The issue of the government confiscating gold is not addressed in U.S. law, but that does not stop some telemarketers from asserting such.

Basically, telemarketers take two steps to reel in their victims. First, they establish the need to buy gold by discussing truly frightful developments in today’s world, nothing new to the callers, just the news that the mainstream media deem newsworthy.

But, in the second step, telemarketers dismiss standard gold bullion coins, American Gold Eagles and Krugerrands, saying they are “confiscatable.” In essence, they say gold will protect, but what good does it do to buy gold that the government can confiscate?

Buying gold has long been an accepted move during periods of uncertainty, but it is not a prudent move if you buy at highly inflated prices. Sadly, people who respond to today’s radio and television ads that hawk gold are likely to pay way too much for their gold.

Investors wanting to buy gold would be much better off if they went with basic bullion products, such as American Gold Eagles, Krugerrands or gold bullion bars, of which several sizes are available. These products can be purchased at two percent to five percent over the value of their gold content, depending on product and the quantity. Gold bullion bars usually carry smaller premiums than gold coins.

At first glance, buying gold may seem a simple, straight forward process. However, there are dangers, such as falling for a telemarketer’s line that his coins are “non-confiscatable” and somehow have more value because you bought them from him. Basic bullion is the way to go when investing in gold.

If you would like to discuss investing in fractional-ounce gold coins, or talk any aspect of investing in gold, call us at (480) 939-4653. We take calls 7:00 am to 5:00 pm MST, Mondays through Fridays.